Andrew Goodwin, senior economic adviser to the Ernst & Young Item Club, said: "Private sector activity has slowed sharply through the autumn and this is likely to translate into job cuts in the private sector in the new year. With the public sector cuts continuing, we could see the unemployment rate heading towards 9pc or 2.9m by the middle of 2012."

But business leaders are increasingly concerned over rising youth unemployment, with 16 to 24 year-olds facing the "scarring effect" that comes from long-term joblessness at an early age.

The youth unemployment rate stands at 22pc – more than double the level in Germany – with experts expecting it to rise further as the number of entry-level jobs available diminishes amid falling business confidence.

Neil Bentley, CBI deputy director-general, said: “We must act now to prevent a generation being scarred in the long-term by unemployment," adding the Government's new £1bn youth contract would help create placements and apprenticeships for the young.

But Carmen Watson, managing director of Pertemps recruitment agency, said the Government should focus on making young people more "job-ready" to increase their chances of employment in a limited jobs market.

“The important task is not just to get young people working, but to get them into sustainable employment," she said. "This means that training providers should shift their entire focus to getting young people job-ready and into suitable roles and not trying to put square pegs in round holes."

But she also called on employers to do their bit. "These are the potential employees who have the talent but also require the nurturing and mentorship needed to acclimatise to new working environments,” she said.

A recent survey from the British Chambers of Commerce warned companies that might be able to hire in the new year were put off by a lack of skills among British workers.

The survey questioned the education system's ability to develop the right skills and called on the Government to ramp up advanced apprenticeships for the young, focusing on quality not quantity.

Saurav Chopra, chief executive of Huddlebuy, said: "Confidence in a recovery within the next 12 months remains at an all-time low. Small businesses can be the engine of economic growth in the future but they need urgent support and help from the Government and the banking sector across the UK to fuel jobs.”